Problem 1

Budel Dortmund Manufacturing Company (BDMC) is considering a 3-year project, which has the following probability distributions for possible end-of-year cash flows in each of the next three years:

Year 1Year 2Year 3

Prob.Cash Flow$Prob.Cash Flow$Prob.Cash Flow$

0.305000.15100 0.25200

0.403000.35200 0.75800

0.307000.35600

0.15900

The probability distributions for possible weighted average cost capital, given three options of financing the project, is given as:

Prob.WACC

0.3010%

0.4012%

0.3014%

What is the expected net present value of the project assuming initial cash out of $2,200?